Impact of digitalization on business valuation process – valuation of distressed companies (OIV International Conference, Milan 4 November 2019)

OIV, the Italian valuation standard setter will hold its annual conference on business valuation on next 4th of November, in Milan. Two conference topics deserve, in our opinion, a particular attention.

The first one is about the impact on valuation of businesses of advanced digitalization. Speaker about this topic will be Prof. Wolfgang Ballwieser, an eminent valuation expert in Germany. He already discussed about digitalization and valuation in a paper published in the EACVA magazine. EACVA (European branch of American NACVA) has many members in German speaking countires. As Ballwieser writes, digitalization impacts on business valuation in various ways. We believe one of them, is the possibility to perform very complex simulations of many alternative scenarios of future growth of income streams (cash flows or earnings). Based on large data sets and on multiple variables, such simulations would, in theory, make it easier to determine which income stream can be considered as “expected” i.e. can best represent the mean probability scenario of a company’s future development. However, in practice, increased computational power to process fast a lot of data as never before in valuation profession still cannot resolve, we believe, the problem posed by assigning to each simulated scenario an appropriate probability weighting in order to get “expected” income streams that make sense. The paradox could be that by multiplying simulated scenarios one may, as in Germany nicely they say, “not see the forest because of the too many trees”.

The second topic is the valuation of businesses that are in economic and/or financial difficulty or that are already involved in a brankruptcy proceeding. Speaker will be Prof. Mauro Bini, who is also chairman of OIV’s management board and an internationally renowned valuation expert. Bini, together with other OIV management board members (among them, myself, having had the honor to serve on the board from 2011 to 2018) has worked, in 2017, in drafting “best practice” guidance on said subject. However, since the whole bankruptcy law in Italy has been substantially changed during 2018, the document needs to undergo some revision, before it is published as a discussion paper by OIV. Nevetherless, since we may soon face a new international economic crisis of some importance (think solely to the trade war broken out in the last six months and to the stellar sovereign debt outstandig), as business valuers we may find Bini’s speech particularly interesting.

We at Salvidio & Partners will attend the conference and will enjoy meeting our friends and colleagues that come from Italy and abroad to the annual OIV event.

Ascanio Salvidio